<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT
Under Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE QUARTER ENDED JUNE 1, 1996
Commission File No. 0-3488
H. B. FULLER COMPANY
A Minnesota Corporation
IRS Employer Identification No. 41-0268370
2400 Energy Park Drive, St. Paul, Minnesota 55108
Telephone - (612) 645-3401
Common Stock, $1.00 par value
14,053,636 shares outstanding
as of June 30, 1996
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
<PAGE>
H. B. FULLER COMPANY
SECOND QUARTER 1996 Form 10-Q
Quarterly Report
Table of Contents
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements:
Consolidated Condensed Statements of Earnings - Twenty-six weeks
ended June 1, 1996 and six months ended May 31, 1995
Consolidated Condensed Balance Sheets - June 1, 1996 and November
30, 1995
Consolidated Condensed Statements of Cash Flows - Twenty-six
weeks ended June 1, 1996 and six months ended May 31, 1995
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Consolidated Condensed Statements of Earnings
(Unaudited)
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Thirteen Three Proforma Three *
Weeks Ended Months Ended Months Ended
June 1, 1996 May 31, 1995 May 31, 1995
------------ ------------ ----------------
<S> <C> <C> <C>
Net sales $320,223 $322,434 $321,381
-------- -------- --------
Costs and expenses:
Cost of sales 218,957 218,666 219,570
Selling, administrative
and other expenses 84,191 81,788 83,613
Interest expense 4,958 4,463 4,463
Other (income) expense, net (1,924) 845 752
-------- -------- --------
306,182 305,762 308,398
-------- -------- --------
Earnings before income taxes and
minority interests 14,041 16,672 12,983
Income taxes (5,692) (6,530) (5,035)
Net earnings of consolidated subsidiaries
applicable to minority interests 66 (73) 72
-------- -------- --------
Net earnings 8,415 10,069 8,020
Dividends on preferred stock (4) (4) (4)
-------- -------- --------
Net earnings applicable to common stock $ 8,411 $ 10,065 $ 8,016
======== ======== ========
Average number of common and common
equivalent shares outstanding 14,093 14,053 14,053
======== ======== ========
Net earnings per common share $ 0.60 $ 0.72 $ 0.57
======== ======== ========
Cash dividend per common share $ 0.16 $ 0.16 $ 0.16
======== ======== ========
</TABLE>
* See accompanying Footnote 7 in Notes to Consolidated Condensed Financial
Statements.
<PAGE>
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
TWENTY-SIX SIX PROFORMA SIX*
WEEKS ENDED MONTHS ENDED MONTHS ENDED
JUNE 1, 1996 MAY 31, 1995 MAY 31, 1995
------------- ------------- ------------
<S> <C> <C> <C>
NET SALES $623,794 $618,084 $612,960
------------ ------------ -----------
Costs and expenses:
Cost of sales 430,467 420,937 420,081
Selling, administrative
and other expenses 166,225 160,073 161,532
Interest expense 10,215 8,575 8,575
Other (income) expense, net (1,635) 1,238 1,701
------------ ------------ -----------
605,272 590,823 591,889
------------ ------------ -----------
Earnings before income taxes and
minority interests 18,522 27,261 21,071
Income taxes (7,480) (10,850) (8,339)
Net earnings of consolidated subsidiaries
applicable to minority interests 43 (309) (95)
------------ ------------ -----------
Earnings before accounting changes 11,085 16,102 12,637
Accounting changes - (2,532) (2,532)
------------ ------------ -----------
Net earnings 11,085 13,570 10,105
Dividends on preferred stock (8) (8) (8)
------------ ------------ -----------
NET EARNINGS APPLICABLE TO COMMON STOCK $11,077 $13,562 $10,097
============ ============ ===========
Average number of common and common
equivalent shares outstanding 14,094 14,042 14,042
============ ============ ===========
Per share earnings before accounting changes $0.79 $1.15 $0.90
Per share accounting changes - (0.18) (0.18)
------------ ------------ -----------
NET EARNINGS PER COMMON SHARE $0.79 $0.97 $0.72
============ ============ ===========
Cash dividend per common share $0.32 $0.31 $0.31
============ ============ ===========
* See accompanying Footnote 7 in Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
(In Thousands)
June 1, 1996 November 30, 1995
-------------------- ---------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,685 $9,061
Trade receivables 197,381 184,821
Allowance for doubtful accounts (7,062) (6,256)
Inventories 148,397 159,024
Other current assets 41,422 40,991
-------- --------
Total current assets 396,823 387,641
Property, plant and equipment, net of
accumulated depreciation of $264,533
in 1996 and $253,138 in 1995 367,989 355,123
Other intangibles 15,094 16,761
Excess cost 36,818 38,310
Other assets 38,486 31,094
-------- --------
Total assets $855,210 $828,929
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $53,392 $53,749
Current installments of long-term debt 9,986 5,722
Accounts payable 111,590 117,446
Accrued expenses 60,804 59,504
Income taxes payable 7,506 9,164
-------- --------
Total current liabilities 243,278 245,585
Long-term debt,
excluding current installments 189,081 166,459
Deferred income taxes, accrued pension
cost, postretirement costs, other
liabilities and minority interests 119,271 117,471
Stockholders' equity:
Preferred stock 306 306
Common stock 14,015 14,007
Additional paid-in capital 20,883 20,771
Retained earnings 263,130 256,489
Foreign currency translation adjustment 8,427 11,319
Unearned compensation (3,181) (3,478)
-------- --------
Total stockholders' equity 303,580 299,414
Total liabilities and -------- --------
stockholders' equity $855,210 $828,929
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS
------------------------------------------
PERIOD ENDED * ENDED
JUNE 1, 1996 MAY 31, 1995
-------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $11,204 $13,570
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 26,507 19,213
Pension costs 7,361 4,693
Deferred income tax 1,641 3,339
Accounting changes - 2,532
Other items (178) 1,152
Change in current assets and liabilities:
Increase in accounts receivable (16,125) (10,466)
Decrease (Increase) in inventory 12,601 (9,933)
Increase in prepaid assets (3,496) (3,156)
(Decrease) increase in accounts payable (2,137) 473
Increase (decrease) in accrued expense 5,896 (6,280)
(Decrease) in income taxes payable (1,810) (902)
------------------- -------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $41,464 $14,235
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchased property, plant and equipment (40,568) (35,966)
Purchased business, net of cash acquired (8,200) -
------------------- -------------------
NET CASH USED IN INVESTING ACTIVITIES (48,768) (35,966)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 34,157 66,970
Current installments and payments of long-term debt (14,539) (33,247)
Increase (decrease) in notes payable 1,001 (4,129)
Dividends paid (4,562) (4,263)
Other (813) (7,195)
------------------- -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 15,244 18,136
Effect of exchange rate changes on cash (316) 243
------------------- -------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS $ 7,624 ($3,352)
Cash and cash equivalents at beginning of year 9,061 9,830
------------------- --------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $16,685 $6,478
=================== ===================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest expense (net of amount capitalized) $14,627 $ 9,294
Income taxes $ 5,714 $10,204
Noncash investing and financing activities:
Assets acquired by incurring notes payable/long-term debt $ 3,765 $ 750
</TABLE>
For purposes of this statement, the Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
* Includes the twenty-six weeks ended June 1, 1996 for all entities and the
two month stub period for Non-U.S. entities. See footnote 7.
<PAGE>
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Amounts in Thousands)
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited Consolidated
Condensed Financial Statements include all adjustments necessary to
present fairly the financial position as of June 1, 1996 and November
30, 1995, the results of its operations for the thirteen and twenty-
six week periods ended June 1, 1996 and the three and six month
periods ended May 31, 1995 and its cash flows for the twenty-six week
period ended June 1, 1996 and six month period ended May 31, 1995. All
adjustments were of a normal recurring nature.
2. The results of operations for the thirteen and twenty-six week periods
ended June 1, 1996 are not necessarily indicative of the results to be
expected for the full year.
3. The composition of inventories is presented below:
<TABLE>
<CAPTION>
June 1, 1996 November 30, 1995
------------ -----------------
<S> <C> <C>
Raw materials $ 68,279 $ 78,180
Finished goods 92,044 92,629
LIFO reserve (11,926) (11,785)
-------- --------
$148,397 $159,024
======== ========
</TABLE>
4. Net earnings per common share is determined by dividing the net
earnings applicable to common stock by the weighted average number of
common and common equivalent shares outstanding (stock options).
5. The Company enters into foreign exchange forward contracts as a hedge
against firm commitment foreign currency intercompany accounts
receivable/payable/debt. Market value gains and losses are recognized,
and the resulting credit or debit offsets foreign exchange gains or
losses on those receivables/payables/debt. The aggregate contract
value of instruments used to sell pound sterling in exchange for Dutch
guilders was approximately $5,118. The contracts mature between
October 20, 2000 and November 20, 2000.
6. The carrying amounts and estimated fair values of the Company's
significant other financial instruments at June 1, 1996, are as
follows: (000's)
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
-------- --------
<S> <C> <C>
Cash and short-term investments $ 16,685 $ 16,685
Notes payable 53,392 53,392
Long-term debt 199,067 205,434
</TABLE>
<PAGE>
Fair values of short-term financial instruments approximate their
carrying values due to their short maturity.
The fair value of long-term debt is based on quoted market prices for
the same or similar issues or on the current rates offered to the
Company for debt of similar maturities. The estimates presented above
on long-term financial instruments are not necessarily indicative of
the amounts that would be realized in a current market exchange.
7. Effective December 1, 1995, in the first quarter of the Company's 1996
fiscal year, the Company's international subsidiaries that previously
reported on a fiscal year ending September 30 changed their reporting
period to a Company wide fiscal year ending on the Saturday closest to
November 30. This change was made to reflect the results of operations
and financial position of these subsidiaries on a more timely basis
and to increase operating and planning efficiency. The results of
operations of these subsidiaries for the period October 1 through
November 30, 1995, net earnings of $118 or $0.01 per share, have been
reflected as an adjustment to retained earnings. Sales for the period
were $104,811 and cost of sales was $73,341. The Company also changed
to thirteen-week quarters.
1995 Proforma (International subsidiaries results restated to November 30
fiscal year end)
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $ 291,579 $ 321,381 $ 309,063 $ 326,789
Gross profit 91,068 101,811 97,920 100,072
Operating earnings 13,149 18,198 17,996 16,366
Earnings before cumulative
effect of accounting changes 4,617 8,020 7,332 8,226
Cumulative effect of
accounting changes (2,532) -- -- --
- ----------------------------------------------------------------------------------------
Net earnings $ 2,085 $ 8,020 $ 7,332 $ 8,226
- ----------------------------------------------------------------------------------------
Earnings(loss) per common share:
Earnings before cumulative
effects of accounting changes $ 0.33 $ 0.57 $ 0.52 $ 0.59
Cumulative effect of accounting
changes $ (0.18) -- -- --
- ----------------------------------------------------------------------------------------
Net earnings $ 0.15 $ 0.57 $ 0.52 $ 0.59
8. During the second quarter, the Company acquired a hot melt adhesives product
line for industrial applications for $8,200. The acquisition includes product
formulas, customer lists, technology and inventory. The Company has signed a
long-term agreement to have these products toll produced.
</TABLE>
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
(Dollars in Thousands)
The following discussion includes comments and data relating to the Company's
financial condition and results of operations during the periods included in the
accompanying Consolidated Condensed Financial Statements.
Results of Operations
- ---------------------
Net sales for the second quarter of 1996 decreased $2,211, or 0.7%, when
compared to the same quarter in 1995. Net sales for the second quarter of 1996,
on a proforma basis (See Note 7 to Consolidated Condensed Financial Statements),
decreased $1,158, or 0.4%, when compared to 1995. Net sales for the first half
of 1996 increased $5,710, or 0.9%, when compared to the first half of 1995. Net
sales for the first half of 1996, on a proforma basis (See Note 7 to
Consolidated Condensed Financial Statements), increased $10,834, or 1.8%, when
compared to 1995.
A comparison of sales increases by operating area is as follows:
<TABLE>
<CAPTION>
Quarter Ended
Quarter Ended June 1, 1996
June 1, 1996 Proforma Quarter (Note 7)
Operating Area May 31, 1995 Ended May 31, 1995
-------------- ------------- -------------------
<S> <C> <C> <C> <C>
North America $ 9,506 5% $ 8,335 5%
Latin America (1,854) (4%) 669 2%
Europe (10,251) (13%) (9,358) (12%)
Asia/Pacific 388 2% (804) (4%)
-------- -------
Total $ (2,211) (1%) $ (1,158) --
======== =======
Half Year Ended
Half Year Ended June 1, 1996
June 1, 1996 Proforma Half Year (Note 7)
Operating Area May 31, 1995 Ended May 31, 1995
--------------- ---------------- -------------------
North America $ 17,325 5% $ 16,862 5%
Latin America (3,909) (4%) 914 1%
Europe (7,981) (6%) (8,024) 6%)
Asia/Pacific 275 1% 1,082 (3%)
-------- -------
Total $ 5,710 1% $ 10,834 2%
======== =======
</TABLE>
<PAGE>
In North America, the 5% second quarter sales increase was composed of 3
percentage points relating to increased volume and changes in product mix and 2
percentage points related to fourth quarter 1995 and second quarter 1996
acquisitions. The Adhesives, Sealants and Coatings Group had a 6% increase in
sales with 3 percentage points resulting from a late fourth quarter 1995
acquisition and a second quarter 1996 acquisition and the other 3 percentage
points of growth occurring primarily in the paper/converting and polymer markets
of the industrial adhesives group and in the woodworking, window and engineered
systems markets of the structural adhesives group. Automotive sales were down
slightly in the quarter compared to last year as a result of General Motors
strikes which occurred early in the quarter. In the Specialty Group, sales
increased 5% primarily due to growth occurring in the Foster Products
Corporation. The Industrial Coatings Division, TEC Incorporated and Linear
Products Incorporated experienced a slight sales growth when compared to 1995.
Sales of the Monarch Division, a division in the process of being sold, were
down slightly compared to the sales of 1995. North American operating earnings
grew at a rate of 28% increasing from $11,535 to $14,786. On a proforma basis
(See Note 7 to Consolidated Condensed Financial Statements), North American
sales increased 5% and operating earnings grew at a rate of 23% increasing from
$12,008 to $14,786.
For the first half of 1996, North American sales increased 5% and was composed
of 2 percentage points resulting from increased volume and changes in product
mix, 2 percentage points resulting from sales of businesses acquired late in the
fourth quarter of 1995 and second quarter of 1996, and one percentage point
resulting from an increase in pricing. The Adhesives, Sealants and Coatings
Group had a 5% increase in 1996 sales, with 2 percentage points resulting from
late fourth quarter 1995 and second quarter 1996 acquisitions and the other 3
percentage points of growth occurring primarily in the paper/converting and
polymer units of the industrial adhesives group and in engineered systems,
window and nonwoven markets of the structural adhesives group. The Specialty
Group had a 5% sales growth with the primary growth occurring in the Industrial
Coatings Division and Linear Products Incorporated. Sales of the Monarch
Division, a division that is in the process of being sold, were down slightly
compared to 1995. North American operating earnings grew at a rate of 25% from
$16,625 in 1995 to $20,870 for the first half of 1996. On a proforma basis (See
Note 7 to Consolidated Condensed Financial Statements), North American sales
increased 5% and operating earnings grew at a rate of 23% increasing from
$16,979 to $20,870.
Latin American second quarter 1996 sales decreased 4% from 1995. The decrease in
sales is composed of 8 percentage points relating to decreased volume and
changes in product mix and a 4 percentage point increase in pricing. Latin
American operating earnings were down substantially when compared to 1995, from
$4,742 in 1995 to $2,788 in 1996. High raw material costs, lower volumes and a
change in product mix (particularly paint sales) were causes for the decrease in
earnings. On a proforma basis (See Note 7 to Consolidated Condensed Financial
Statements), Latin American second quarter 1996 sales approximated the sales of
1995 and operating earnings decreased slightly from $2,793 to $2,788. This trend
of operating earnings is expected to improve in the second half of 1996 as a
result of cost reduction efforts in Latin America.
<PAGE>
In Europe, the 13% second quarter 1996 sales decrease was composed of one
percentage point resulting from unfavorable foreign currency translations due to
the strengthening of the U.S. dollar, one percentage point due to an increase in
pricing and a negative thirteen percentage points due to a decrease in volume
and changes in product mix. As a result of the decreased volumes, primarily the
result of a continuing weak Germany economy, operating earnings decreased from
$6,218 in 1995 to ($208) in 1996. On a proforma basis (See Note 7 to
Consolidated Condensed Financial Statements), European sales decreased 12% in
1996 compared to 1995 and operating earnings decreased from $4,105 in 1995 to
($208) in 1996.
Asia/Pacific sales were up 2% compared to the second quarter last year. The
strengthening of the U.S. dollar, compared to local currencies, caused a 2
percentage point decrease. An 8 percentage point increase resulting from
increases in volume and change in product mix was partially offset by 4
percentage points negative pricing. Operating earnings improved from ($515) in
1995 to ($291) in 1996. On a proforma basis (See Note 7 to Consolidated
Condensed Financial Statements), Asia/Pacific sales were down 4% in 1996
compared to 1995 and operating earnings improved from ($708) in 1995 to ($291)
in 1996.
For the first half of 1996, Latin American sales decreased 4% over the same
period in 1995 with 10 percentage points accounted for by decreased volume and
changes in product mix, with a partial offset of 6 percentage points resulting
from increased pricing. Operating earnings decreased substantially from $11,668
in 1995 to $6,830 in 1996 as a result of reduced volumes and a change in paint
sales mix. European sales were down 6% from first half 1995 sales with the
weakening of the U.S. dollar causing a one percentage point increase. The 7
percentage point decrease in local currency sales was comprised of 11 percentage
points resulting from decreased volume and changes in product mix, primarily in
Germany, and 4 percentage points in increased pricing. Operating earnings
decreased from $8,949 in 1995 to $136 in 1996. Asia/Pacific sales increased 1%
with a 2 percentage point decrease resulting from a strengthened U.S. dollar. A
7 percentage point increase resulting from volume and changes in product mix was
partially offset by a 4 percentage point decrease in pricing. Continued
expansion activities in Asia/Pacific and the economic slowdown in Japan caused
operating earnings to decrease from ($168) in 1995 to ($734) in 1996.
On a proforma basis (See Note 7 to Consolidated Condensed Financial Statements),
Latin American first half 1996 sales were up 1% from 1995 and operating earnings
decreased from $8,632 to $6,830. In Europe sales were down 6% compared to 1995
and operating earnings decreased from $6,591 in 1995 to $136 in 1996. In
Asia/Pacific sales increased 3% and operating income improved from ($855) in
1995 to ($734) in 1996.
Cost of sales for the second quarter increased 0.1% ($291) over the same quarter
in 1995. Consolidated gross margins, as a percent of sales, decreased from
32.2% in 1995 to 31.6% in 1996. Lower volume and product mix in Europe and
Latin America were the primary reasons for this decrease in gross margin
percent. On a proforma basis (See Note 7 to Consolidated Condensed Financial
Statements), cost of sales for the second quarter decreased 0.3% ($613) from the
same period in 1995. Proforma consolidated gross margins, as a percent of
sales, decreased from 31.7% in 1995 to 31.6% in 1996.
<PAGE>
Year-to-date, cost of sales was up 2.3% ($9,530) when compared to the same
period in 1995. Consolidated gross margins, as a percent of sales, decreased
from 31.9% in 1995 to 31.0% in 1996 with lower volume and product mix in Europe
and Latin America being the primary reasons for this decrease in gross margin
percent. On a proforma basis (See Note 7 to Consolidated Condensed Financial
Statements), cost of sales for the first half year increased 2.5% ($10,386) over
the same period in 1995. Proforma consolidated gross margins, as a percent of
sales, decreased from 31.5% in 1995 to 31.0% in 1996.
Selling, administrative, and other expenses for the quarter were up 2.9%
($2,403) when compared to the prior year. This category of expense, as a
percent of sales, increased from 25.4% in 1995 to 26.3% in 1996. The Company
expensed $2,790 in restructuring costs, primarily in Germany, in the quarter.
Excluding this expense, selling, administrative, and other expenses were down
0.5% ($387) and this category of expense, as a percent of sales, remained equal
to the 25.4% in 1995. The overall reduction in volume for the quarter impacted
the ability of the Company to leverage operating expenses. On a proforma basis
(See Note 7 to Consolidated Condensed Financial Statements), selling,
administrative, and other expenses for the quarter were up 0.7% ($578) over the
same period in 1995 and as a percent of sales increased from 26.0% in 1995 to
26.3% in 1996. Excluding the restructuring charge, the percent of sales
improved from 26.4% in 1995 to 25.4% in 1996.
Selling, administrative, and other expenses for the first half were up 3.8%
($6,152) when compared to the prior year. This category of expense, as a
percent of sales, increased from 25.9% in 1995 to 26.6% in 1996. Adjusting for
the restructuring charge in the quarter, the expense was up 2.1% ($3,362) and
the percent of sales for 1996 would be 26.2%. The overall low sales volumes for
the first half impacted the ability of the Company to leverage operating
expenses. On a proforma basis (See Note 7 to Consolidated Condensed Financial
Statements), selling, administrative, and other expenses for the first half were
up 2.9% ($4,693) over the same period in 1995 and, as a percent of sales,
increased from 26.4% in 1995 to 26.6% in 1996. Adjusting for the restructuring
charge in the quarter, the expense was up 1.2% ($1,903) and, as a percent of
sales, improved from 26.6% in 1995 to 26.2% in 1996.
Year-to-date interest expense increased 19.1% ($1,640) primarily as a result of
increased borrowing to finance the increased capital spending.
Year-to-date other (Expense)/Income, Net improved from an expense of $1,238 in
1995 to income of $1,635 in 1996. The $2,873 improvement in earnings is
primarily the result of a gain on the sale of property in Munich, Germany and
income generated from the sale of equity investments in the United States.
Income taxes for the first half of 1996 decreased $3,370 (31.1%) when compared
to the first half of 1995 primarily as a result of decreased earnings. The
effective tax rate increased from 39.8% in 1995 to 40.4% in 1996, primarily as a
result of losses in some countries in Latin America.
<PAGE>
Net earnings decreased from $13,570 in the first half of 1995 to $11,085 in the
first half of 1996. Earnings before the cumulative effect of the accounting
change in 1995 were $16,102. On a proforma basis (See Note 7 to Consolidated
Condensed Financial Statements), 1995 earnings before the cumulative effect of
the accounting change were $12,637.
Liquidity and Capital Resources
- -------------------------------
The cash flows as presented in this section have been calculated by comparison
of the Consolidated Condensed Balance Sheets at June 1, 1996 and November 30,
1995 (September 30, 1995 for international subsidiaries) and May 31, 1995 and
November 30, 1994.
During the first half of 1996, the Company generated $41,464 of cash to finance
operations as compared to $14,235 in the first half of 1995. The increased
generation of cash was primarily the result of a $25,193 decrease in cash
required to fund working capital in 1996 and a $7,294 increase in depreciation
and amortization compared to 1995.
Working capital was $153,545 at June 1, 1996 compared to $142,056 at November
30, 1995. The current ratio at June 1, 1996 was 1.6 equaling the ratio at
November 30, 1995. The number of days sales in trade accounts receivable was 53
days at June 1, 1996 compared to 51 days sales at May 31, 1995. The average
days sales in inventory on hand was at 61 days at June 1, 1996 compared to 68
days sales at May 31, 1995.
The Company's long-term debt to total capitalization ratio was 38.4% at June 1,
1996 compared to 35.7% at November 30, 1995. Long-term debt increased to fund
capital expenditures, the acquisition made in the quarter and to fund increased
operating working capital.
Capital expenditures for property, plant and equipment of $40,568 in first half
1996 were primarily for continued construction of the research and development
facility in Minnesota, the investment in information technology, for general
improvements in manufacturing productivity and operating efficiency and for
environmental projects. Environmental capital expenditures, less than 10% of
total expenditures, are not a material portion of overall Company expenditures.
<PAGE>
H.B. FULLER COMPANY AND CONSOLIDATED SUBSIDIARIES
Increases(Decreases)
(Dollars in Thousands)
A summary of the period to period changes in the principal items included in the
Consolidated Condensed Statements of Earnings is presented below:
<TABLE>
<CAPTION>
Comparison of Twenty-six Comparison of Twenty-six
Weeks Ended June 1, Weeks Ended June 1, 1996
1996 and Six Months and Proforma Six Months
Ended May 31, 1995 Ended May 31, 1995 **
------------------------ -------------------------
<S> <C> <C> <C> <C>
Net sales $5,710 0.9% $10,834 1.8%
Cost of sales 9,530 2.3% 10,386 2.5%
Selling, administrative and other expenses 6,152 3.8% 4,693 2.9%
Interest expense 1,640 19.1% 1,640 19.1%
Other income (expense), net (2,873) * (3,336) *
------ ------
Earnings before income taxes and
minority interests (8,739) -32.1% (2,549) -12.1%
Income taxes 3,370 -31.1% 859 -10.3%
Net earnings of consolidated subsidiaries
applicable to minority interests 352 138 *
----- ------
Earnings before accounting changes (5,017) -31.2% (1,552) -12.3%
Accounting changes 2,532 2,532
------ -------
Net earnings (2,485) -18.3% 980 9.7%
====== =======
Comparison of Thirteen Comparison of Thirteen
Weeks Ended June 1, Weeks Ended June 1, 1996
1996 and Six Months and Proforma Six Months
Ended May 31, 1995 Ended May 31, 1995 **
---------------------- -------------------------
Net sales ($2,211) -0.7% ($1,158) -0.4%
Cost of sales 291 0.1% (613) -0.3%
Selling, administrative and other expenses 2,403 2.9% 578 0.7%
Interest expense 495 11.1% 495 11.1%
Other income (expense), net 2,769 * 2,676 *
----- -----
Earnings before income taxes and
minority interests (2,631) -15.8% 1,058 8.1%
Income taxes 838 12.8% (657) -13.0%
Net earnings of consolidated subsidiaries
applicable to minority interests 139 * (6) -8.3%
----- -------
Net earnings ($1,654) -16.4% 395 4.9%
======= =======
* Change of 100% or more.
** See footnote 7.
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
- -----------------
ENVIRONMENTAL REMEDIATION
The Company is currently deemed a potentially responsible party ("PRP"), in
conjunction with numerous other parties, in a number of government enforcement
and private actions associated with hazardous waste sites ("Sites"). As a PRP,
the Company may be required to pay a share of the cost of investigation and
cleanup of these Sites. In some cases the Company may have rights of
indemnification from other parties.
The Company's future liability for such claims is difficult to predict because
of uncertainty as to the cost of investigation and cleanup of the Sites, the
Company's responsibility for such hazardous wastes and the number or financial
condition of other PRPs or defendants. Reserves for future liabilities are
established as soon as an estimate of potential cleanup costs and allocation can
be determined. The reserves are reviewed and revised quarterly in light of
currently available technical and legal information. Based upon such available
information, it is the Company's opinion that these environmental claims will
not result in material liability to the Company.
Following is an update on three previously reported Sites.
East Bethel, Minnesota; Oak Grove, Minnesota; Andover, Minnesota
- ----------------------------------------------------------------
In 1994, the Minnesota Legislature enacted the Landfill Cleanup Act (the "Act")
whereby PRPs that have expended funds for remediation at a qualified Minnesota
landfill may forego any future obligations for remediation and obtain
reimbursement for remedial expenses incurred in exchange for a waiver of claims
through participation in the Landfill Cleanup Program. The Company applied for
participation in this program, through each Site's PRP group, for three
previously reported Sites: East Bethel Landfill, East Bethel, Minnesota; Oak
Grove Landfill, Oak Grove, Minnesota; and the Waste Disposal Engineering Site,
Andover, Minnesota. The Minnesota Pollution Control Agency has issued the
requisite Notices of Compliance at each of these Sites. Upon issuance, the
Minnesota Pollution Control Agency assumed all future remedial activities at
these Sites. Accordingly, the Company has no further remediation liability at
these three Sites.
<PAGE>
Item 4.
Submission of Matters to a Vote of Security Holders
- ---------------------------------------------------
The Company held its Annual Meeting of Shareholders on April 18, 1996. Proxies
for such meeting were solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended. A total of 17,680,153 common and preferred
share votes ("Votes") were entitled to be cast at the meeting. At such meeting,
each of management's three nominees for director in Class III were elected for a
three year term (until the Company's 1999 Annual Meeting), and until the
directors' respective successors are duly elected and qualified;
<TABLE>
<CAPTION>
Combined Common & Combined Common &
Preferred Share Preferred Share
Director Name Votes in Favor Votes Withheld
- ------------- -------------- --------------
<S> <C> <C>
Edward L. Bronstien 16,036,262 319,829
Walter Kissling 16,008,747 347,344
Lorne C. Webster 16,049,153 306,938
</TABLE>
A proposal to ratify the appointment of Price Waterhouse as independent auditors
for the Company for the fiscal year ending November 30, 1996 was approved by
16,149,967 Votes cast in favor, 131,145 Votes cast against, and 74,979 Votes
abstaining. There were no broker nonvotes with respect to the ratification of
the appointment of Price Waterhouse as auditors.
In addition, a stockholder proposal requesting the Board of Directors to adopt a
policy to cease activity with the tobacco industry by January 1, 1997 was
defeated by 13,089,459 Votes against the stockholder proposal, 1,582,597 Votes
in favor of the stockholder proposal and 919,401 Votes abstaining. There were
764,634 broker nonvotes with respect to the stockholder proposal.
<PAGE>
Item 6.
Exhibits and reports on Form 8-K
- --------------------------------
(a) Exhibits to Part I
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed for the thirteen
weeks ended June 1, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
H. B. Fuller Company
Dated: July 16, 1996 /S/ Jorge Walter Bolanos
------------------------
Jorge Walter Bolanos
Senior Vice President,
Treasurer and
Chief Financial Officer
Dated: July 16, 1996 /S/ David J. Maki
-----------------------
David J. Maki
Vice President
and Controller
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Balance Sheet, Income Statement and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> JUN-01-1996
<CASH> 16,685
<SECURITIES> 0
<RECEIVABLES> 197,381
<ALLOWANCES> 7,062
<INVENTORY> 148,397
<CURRENT-ASSETS> 396,823
<PP&E> 632,522
<DEPRECIATION> 264,533
<TOTAL-ASSETS> 855,210
<CURRENT-LIABILITIES> 243,278
<BONDS> 189,081
<COMMON> 14,015
0
306
<OTHER-SE> 289,259
<TOTAL-LIABILITY-AND-EQUITY> 855,210
<SALES> 623,794
<TOTAL-REVENUES> 623,794
<CGS> 430,467
<TOTAL-COSTS> 596,692
<OTHER-EXPENSES> (1,635)
<LOSS-PROVISION> 2,306
<INTEREST-EXPENSE> 10,215
<INCOME-PRETAX> 18,522
<INCOME-TAX> 7,480
<INCOME-CONTINUING> 11,085
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,085
<EPS-PRIMARY> .79
<EPS-DILUTED> .79
</TABLE>
